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Papa Murphy's: Incremental Improvements Put The Short Story On Hold For At Least One Quarter
- FRSH surprised with its uptick in comp store sales and its key metric improvements.
- If FRSH can show its non-cheese based product sales traction has staying power that would push out the short case further than one quarter.
- With no obvious negative share price catalysts on the horizon prior to Q4 numbers I won't look to short shares prior to that point.
Papa Murphy's Pre-IPO Shareholders Could Be Fully Cooked And Ready To Sell
- November 28 will see the end of FRSH's lockup period; FRSH's major pre-IPO shareholders will have the first chance to sell their shares at this point.
- With over 10 million shares on the line for potential sale at FRSH's lockup expiration (nearly twice the 5.8 million shares at its IPO), FRSH's share price could significantly decline.
- While FRSH has shown signs of growth, its poor stock performance is troubling and could lead many to seek safer bets.
- We suggest investors consider a short opportunity in the time frame surrounding FRSH’s lockup expiration in late November; significant academic research supports this.
Reiterate Papa Murphy's Short Thesis: Q2 2014 Update
- Papa Murphy's Continues to be a compelling short with ~40% upside to the short thesis.
- Franchisee lawsuits have continued to intensify with a second lawsuit filed. Furthermore, we continue to see franchisee bankruptcies on the horizon with a recent bankruptcy in multi-unit franchiser in Texas.
- FRSH has recently initiated a royalty waiver program for new franchisees, signaling to use that the Company is having issues growing in new markets.
Papa Murphy's: Take And Bake Profits From The Short Side
- FRSH should be operating exclusively on its credit facility as of the end of Q2/14.
- FRSH has a history of poor cash management that has lead to the company being buried in debt and interest expense.
- FRSH expenses are growing faster than its revenues which doesn't help the company avoid debt or dilution.
Papa Murphy's: Franchisee Relief Plea Portends Imminent EBITDA Decline - Shares Could Fall 80+%
- May 30 letter from Papa Murphy's Franchisee Association (PMFA) requests moratorium on fees for 31% of franchisees who are losing money. This highlights significant distress in the franchisee system.
- Author estimates that the implementation of PMFA's suggested fee moratorium would likely cause a 30% decline in EBITDA for next several years.
- With a heavy debt load, a 30% decline in EBITDA has a magnified impact on equity value. Author estimates 80% downside.
- If Papa Murphy's fails to act to save struggling franchisees, EBITDA could decline 50%. Given impact of debt, this would make the equity nearly worthless.
- Recent failure of Homemade Pizza suggests the take and bake concept may be fundamentally flawed. Author estimates base case that Papa Murphy's has 80% downside.
Papa Murphy's Holdings Inc: Another Gift From The JOBS Act
- Papa Murphy's is a recent JOBS Act IPO and a compelling short at the current price.
- The Company is priced for perfection, as the business operates in a low barriers to entry environment combined with a over-levered balance sheet.
- Further headwinds include franchisee issues, potential upcoming exit of the Company's financial sponsor, reduction in SNAP benefits and the closure of a sales tax loophole.
- FRSH hasn't shown they can create revenues that outpace expenses operating an otherwise efficient business model.
- FRSH is entering into a growth strategy with significant amounts of uncertainty for the first time in a long time.
- FRSH faces significant risk headwinds that they have no control over.
- Three financial metrics declined for 2013 vs. 2012: operating income percentage of revenue, cash flow percentage of revenue, and EBITDA percentage of revenue.
- Formed in 1981, it looks like FRSH has maxed out its growth potential in the U.S., with 1327 domestic franchisees.
- Lost money the last three years, although adjusting for early debt retirement costs, FRSH showed a marginal profit for 2012 and 2013.
- Per share dilution to IPO investors is -$20.21, which is high relative to the mid-range price of $12.
- Price-to-tangible book value is -1.5, which is very low and generally happens when private equity owners have sucked out as much cash as possible to pay themselves dividends.
- Papa Murphy's Holdings, operator and franchiser of the Papa Murphy's take and bake pizza chain, plans to raise $70.0 million in its upcoming IPO.
- Papa Murphy's has posted solid revenues, along with a small increase in net losses, over the past several years.
- We recommend investors wait on this IPO, given strong competitors, only decent underwriting, and slightly concerning losses.
Wed, Dec. 24, 9:57 AM
- The restaurant industry will run up against soft comps in January and February due to last year's winter storms which were much worse than normal.
- Restaurant same-store sales will rise just over 2% for the full year, according to an estimate from the co-founder of the NRN-MillerPulse tracking survey.
- Technomic sees a 3% growth in restaurant comps in 2015, while Fitch Ratings has an outlook for 2% to 3%.
- On the cost side, commodity prices for chicken, cheese, wheat, and pork are all expected to moderate. However, beef prices are seen increasing 4% to 8%.
- Minimum wage increases in many state kick in on January 1 which could impact the bottom line for many chains.
- Fresh IPOs, concept acquisitions, and leveraged buyouts care expected to be major themes in 2015, according to analysts.
- CEOs on the hot seat include Don Thompson at McDonald's (NYSE:MCD) and Nigel Travis at Dunkin' Brands (NASDAQ:DNKN).
- Restaurant stocks: CAKE, CBRL, CMG, DPZ, DRI, EAT, JACK, PNRA, RRGB, RT, SBUX, SONC, WEN, BWLD, THI, BDL, NATH, LUB, BKW, CHUY, BLMN, PZZA, TXRH, DENN, KKD, BBRG, DFRG, BOBE, RUTH, IRG, DIN, HABT, NDLS, PLKI, LOCO, YUM, KKD, BOBE, TAST, GTIM, FRSH, COSI, FRS, PBPB, FRGI, QSR.
Thu, Nov. 13, 5:37 PM
Thu, Nov. 13, 4:25 PM
Thu, Nov. 13, 4:07 PM
Thu, Nov. 13, 1:53 PM
- The restaurant space continues to see more IPO action than other sectors as owners seek capital for international growth and the lush valuation that escapes them with P-E offers.
- The level of activity is a far cry from the dormant period of 2006 to 2010 when there were zero restaurant IPOs.
- Restaurant IPO scorecard: Dave & Buster's (NASDAQ:PLAY) +29.8%, Zoe's Kitchen (NYSE:ZOES) +29.9%, Noodles (NASDAQ:NDLS) -36.1%, Papa Murphy's (NASDAQ:FRSH) -20.4%, Potbelly (NASDAQ:PBPB) -54.3%, El Pollo Loco (NASDAQ:LOCO) +44.7%.
- Upcoming restaurant IPOs: Habit Restaurants (Pending:HABT), J. Alexander's (NASDAQ:JAX).
- Rumored to be in the IPO mix: Cafe Rio, Shake Shack, Smashburger, Pei Wei (from P.F. Chang's), Bojangles, Wingstop.
Wed, Nov. 12, 5:35 PM
Thu, Sep. 18, 9:37 AM
- Papa Murphy's (NASDAQ:FRSH) announces a new partnership with Udi's Gluten Free, a maker of pizza crusts.
- The company will now offer gluten-free crusts at more than 1,000 stores.
- What to watch: Gluten-free is becoming a major buzzword in the food/restaurant industry even though recent polling showed a majority of consumers weren't quite sure what gluten is and why it should be avoided.
Wed, Aug. 13, 4:52 PM
Wed, Jul. 16, 10:11 AM
- Papa Murphy's (FRSH +0.5%) is quickly becoming a battleground stock for shorts.
- Barbarian Capital notes short interest now reps close to 57% of all the shares the company sold during its IPO.
- SA contributor Dallas Salazer warned last week that the financials on Papa Murphy's don't support a bull thesis.
- Shares of FRSH are down 17% since the IPO.
Thu, Jul. 10, 8:34 AM
- It's been a rough week for retail IPO stocks with both Potbelly (PBPB) and The Container Store (TCS) getting hammered off of disappointing earnings reports.
- Analysts think the pressure to grow store/restaurant count can be a risk to companies going public in a tight consumer spending market.
- If they are right, Noodles (NDLS) and Papa Murphy's (FRSH) could face the same growing pains.
Wed, Jul. 2, 9:05 AM
- Fast-food consumers value quality to a larger degree than price, according to a new survey from Consumer Reports.
- The publication calls the results a "wake-up call" for the industry.
- In-N-Out Burger, The Habit Burger Grill, and Culver's ranked at the top of a list based on food quality, value, and customer service.
- McDonald's (MCD) didn't crack the top 20 for hamburger chains - while Taco Bell (YUM) only managed a #8 ranking in the Mexican fast-food category.
- Papa Murphy's (FRSH) took down the top spot for pizza chains.
Tue, May. 27, 6:44 AM| 2 Comments
Thu, May. 22, 5:38 PM
Thu, May. 22, 4:22 PM
Fri, May. 2, 11:05 AM
- Papa Murphy's (FRSH) opened for trading today at $12.10 after pricing shares in a $11-$13 range.
- The company's make-your-own pie concept sound appealing, but some retail analysts warn investors that size-able sales growth is already baked into the share price.
Wed, Apr. 23, 10:48 AM| Comment!
FRSH vs. ETF Alternatives
Papa Murphy's Holdings Inc is the franchisor and operator of Take 'N' Bake pizza chain in the United States. The Company operates in three business segments namely Domestic Franchise, Domestic Company Stores and International.
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